Competitiveness of the EU poultry meat sector, base year 2015
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Competitiveness of the EU poultry meat
Wageningen Economic Research The mission of Wageningen University and Research is “To explore the potential
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E communications.ssg@wur.nl
the Wageningen Research Foundation have joined forces in contributing to
finding solutions to important questions in the domain of healthy food and living
sector, base year 2015
www.wur.eu/economic-research environment. With its roughly 30 branches, 5,000 employees and 10,000 students,
Wageningen University & Research is one of the leading organisations in its domain. International comparison of production costs
Report 2017-005 The unique Wageningen approach lies in its integrated approach to issues and
ISBN 978-94-6343-091-3 the collaboration between different disciplines.
P.L.M. van Horne
Competitiveness of the EU poultry meat
sector, base year 2015
International comparison of production costs
P.L.M. van Horne
This research has been commissioned by the Association of Poultry Processors and Poultry Trade (AVEC)
in the EU.
Wageningen Economic Research
Wageningen, January 2017
REPORT
2017-005
ISBN 978-94-6343-091-3Horne, P.L.M. van, 2017. Competitiveness of the EU poultry meat sector, base year 2015; International comparison of production costs. Wageningen, Wageningen Economic Research, Report 2017-005. 36 pp.; 14 fig.; 11 tab.; 16 ref. Companies in the European Union poultry meat supply chain have to comply with European legislation on animal welfare, food safety and environmental protection. Whereas the legislation aims to guarantee a comprehensive high quality poultry production, it also confronts the sector with extra costs. Countries outside the EU do not have the same extensive legislation. This report presents the results of a study on the competitiveness of the EU poultry meat sector. The production costs for poultry meat are calculated for several EU and non-EU countries. Key words: competitiveness, poultry meat, production costs, international trade, EU This report can be downloaded for free at http://dx.doi.org/10.18174/404949 or at www.wur.eu/economic-research (under Wageningen Economic Research publications). © 2017 Wageningen Economic Research P.O. Box 29703, 2502 LS The Hague, The Netherlands, T +31 (0)70 335 83 30, E communications.ssg@wur.nl, http://www.wur.eu/economic-research. Wageningen Economic Research is part of Wageningen University & Research. For its reports, Wageningen Economic Research utilises a Creative Commons Attributions 3.0 Netherlands license. © Wageningen Economic Research, part of Stichting Wageningen Research, 2017 The user may reproduce, distribute and share this work and make derivative works from it. Material by third parties which is used in the work and which are subject to intellectual property rights may not be used without prior permission from the relevant third party. The user must attribute the work by stating the name indicated by the author or licensor but may not do this in such a way as to create the impression that the author/licensor endorses the use of the work or the work of the user. The user may not use the work for commercial purposes. Wageningen Economic Research accepts no liability for any damage resulting from the use of the results of this study or the application of the advice contained in it. Wageningen Economic Research is ISO 9001:2008 certified. Wageningen Economic Research Report 2017-005 | Project code 2282100179 Cover photo: Shutterstock
Contents
Preface 5
Summary 6
S.1 Key findings 6
S.2 Complementary findings 7
S.3 Methodology 8
1 Legislation 9
1.1 Introduction 9
1.2 EU legislation 9
1.3 Economic impact of EU legislation 11
1.4 Situation in some third countries 12
2 Production costs of broilers in selected countries, 2015 15
2.1 Production costs in some EU countries 15
2.1.1 Production costs at primary farm in EU countries 15
2.1.2 Production costs after slaughter 17
2.2 Production costs in some non-EU countries 18
2.2.1 Production costs at primary farm 18
2.2.2 Production costs after slaughter 19
3 Results of different scenarios 21
3.1 Description of the scenarios 21
3.2 Production costs of breast filet 21
3.3 Scenario 1 - Lower EU import levy 22
3.4 Scenario 2 - Change in exchange rate 23
3.5 Scenario 3 - Combination 24
4 Conclusions 26
References and websites 28
Appendix 1 Development of the currency exchange rate 30
Appendix 2 Import and export of poultry meat 31
Appendix 3 Overview of EU import levies (€/1,000) and quotas
(1,000 kg) (2017) 34Preface
Companies in the European Union (EU) poultry meat supply chain have to comply with European
legislation on animal welfare, food safety and environmental protection. Whereas the legislation aims
to guarantee a comprehensive high quality poultry production, it also confronts the sector with extra
costs. Countries outside the EU do not have the same extensive legislation. At the same time, the EU
is engaged in multilateral negotiations with the World Trade Organisation (WTO) and bilateral
negotiations with different partners - among them India, Ukraine, Mercosur and the USA - which are
intended to further liberalise trade by reducing or abolishing import levies. This causes concerns within
the poultry meat industry in the EU regarding its competitiveness.
In this report Wageningen Economic Research, an independent research institute of Wageningen
University & Research in the Netherlands, presents the results of a study on the competitiveness of
the EU poultry meat sector. The production costs for poultry meat are calculated for several EU and
non-EU countries. Based on these data, different scenarios are outlined and their effects are calculated
to illustrate the impact of lower import levies and changes in exchange rates. In this study, the base
year for the calculations was 2015. The report is an update of two earlier reports with base year 2013
(van Horne and Bondt, 2014) and base year 2011 (van Horne and Bondt, 2013).
The study was initiated and funded by the Association of Poultry Processors and Poultry Trade (AVEC)
in the EU. The authors thank AVEC for providing access to data and for comments on the draft report.
Prof.dr.ir. J.A.G.J. van der Vorst
General director Social Sciences Group
Wageningen University & Research
Wageningen Economic Research Report 2017-005 |5Summary
S.1 Key findings
EU poultry meat producers have to comply with legislation on environmental protection,
animal welfare and food safety. This legislation has increased the production costs of
poultry meat. At the same time the European Union (EU) is negotiating with other countries
or groups of countries to liberalise trade in agricultural products. This report examines how
lowering import levies impacts the competitiveness of the EU poultry industry. The results
show that the offer price of broiler breast fillet in 2015 of some third countries was already
equal to or lower than the average EU price. Despite the current import levy on breast fillet,
Brazil and Ukraine can be competitive at the EU market. In a scenario with 50% lower
import levies and no additional levy, Brazil, Ukraine and also Thailand, Argentina, the USA,
and Russia have a lower offer price for breast fillet compared to the EU poultry meat
industry.
The results for the situation in 2015 are presented in Figure S.1 and Figure S.2. Figure S.1 lists all
cost components for breast fillet in order to compare the EU average offer price of breast fillet with the
price of six selected non-EU countries. The figure clearly shows that import levies protect the EU from
imports from the non-EU countries. However, even with substantial import levies, the offer price of
breast fillet from Brazil and Ukraine is equal to or lower than the offer price of EU producers.
Compared to the results of the 2013 base line (van Horne and Bondt, 2014) the offer price of breast
fillet of EU producers and all third countries did decrease. This was a result of lower production costs
at farm level (lower feed prices) in all countries. Russia and Ukraine showed the largest decrease in
offer price of 70 to 80 eurocents per kg breast fillet. The main reason for this was a lower exchange
rate of the currency of these countries to the euro.
450
400
350
300
250
200
150
100
50
0
EU USA THA BRA ARG RUS UKR
production costs transport levy on imports additional levy
Figure S.1 Offer price of breast fillet in Germany from EU average (horizontal line) and non-EU
countries in eurocents per kilogram in 2015
6| Wageningen Economic Research Report 2017-005The combined consequences of a 50% lower levy on imports (and no additional levy) and 10% lower
exchange rates are presented in Figure S.2. In this worst-case scenario, all third countries obtain a
competitive to strongly competitive position in the EU market for breast fillet, and they are most likely
to export large volumes of poultry meat to the EU.
450
400
350
300
250
200
150
100
50
0
EU USA THA BRA ARG RUS UKR
production costs transport levy on imports
Figure S.2 Offer price of breast fillet in Germany from EU average (horizontal line) and non-EU
countries in eurocents per kilogram with 50% lower import levy, no additional levy and 10% lower
exchange rate
S.2 Complementary findings
The EU is an important player in the international trade of poultry meat. In 2015, the EU exported
1.490m tonnes of poultry meat with a value of €2.113bn (average value €142 per 100 kg) while it
imported 0.871m tonnes with a value of €2.329bn (average value €267 per 100 kg).
In the EU, poultry meat producers have to comply with European legislation. The additional costs of
EU legislation on farm level were estimated to be 5.0 eurocents per kg live weight (5.8% of the total
production costs in 2015). Table S.1 gives an overview of the regulations and political and societal
interest of environmental, food safety and animal welfare issues in some selected non-EU countries.
Wageningen Economic Research Report 2017-005 |7Tabel S.1 Regulation in selected non-EU countries (Brazil, Argentina, USA and Thailand)
Political and societal Regulations in place Situation in practice
interest
Environment
Manure disposal Medium Differs 1 Most farmers receive revenues from
manure
Ammonia emission Low No No measures taken to limit emission
Food Safety
Zoonosis control Medium Differs 2 Limited action
Meat-and-bone-meal Low No Meat-and-bone-meal is used
Antibiotic use Differs No Growth promoters commonly used
GMOs Low No All GMOs are used
Animal Welfare
Stocking density Low No Bird densities are relatively low
The production costs of broiler meat have been calculated for nine EU countries. After slaughter the
production cost for these countries ranged from 139 to 159 eurocents per kg carcass with an average
of 152 eurocents per kg. In comparison to EU countries, the production costs after slaughter are
significantly lower in most non-EU countries such as Brazil (70% of EU average), Ukraine (74%), USA
(81%), Argentina (81%) and Thailand (83%).
The EU is a large importer of poultry meat. Imports of breast fillet mainly come from Brazil and
Thailand. Salted breast fillet is imported within quota at an import levy of 15.4% The full levy is €1.30
per kg. Cooked breast fillet is imported within quota at an import levy of 8%. The full levy is €1.02 per
kg. Natural breast fillet has just a limited quota and in addition imports occur outside the quota. At
import, an import levy of €1.02 per kg has to be paid with in recent years an additional import levy
(safe guard) of €0.10 to 0.20 per kg. Despite these high import levies, poultry meat imports are
competitive, and in 2015, 96,000 tonnes of natural breast fillet was imported. After the introduction of
import quotas in 2007, the total imports of poultry meat have not further increased.
S.3 Methodology
In this report, Wageningen Economic Research analysed the production costs of poultry meat in nine
EU countries: the Netherlands (NL), Germany (DE), France (FR), the United Kingdom (UK), Italy (IT),
Spain (ES), Denmark (DK), Poland (PL) and Hungary (HU), and six non-EU countries: the United States
of America (USA), Thailand (THA), Brazil (BRA), Argentina (ARG), Russia (RUS) and Ukraine (UKR). In
all countries, data were collected on prices (feed, day-old chicks), technical parameters (growth rate,
feed conversion, mortality), investment (poultry house) and other costs (interest rate, labour, manure
disposal). For slaughterhouses, data were collected on investment in buildings, equipment and labour
costs. The base year for the data was 2015. The total costs were converted to euros with the average
exchange rate in 2015.
Based on the situation in 2015, three scenarios were developed:
• Change in import levy for breast fillet. A 50% reduction of the basic levy and no additional levy to
illustrate the result of any multi- or bilateral agreement of the EU
• Lower exchange rate for the currency of the non-EU countries.
• In the scenarios, a 10% lower exchange rate was assumed. An analysis of the exchange rates
developments showed that this can be a realistic scenario for some non-EU countries.
• Combination of both measures.
• 50% reduction of the import levies plus a 10% lower exchange rate.
1
Regulations in some regions, for example in the USA.
2
Regulations in some countries, for example in the USA or only export oriented companies.
8| Wageningen Economic Research Report 2017-0051 Legislation
1.1 Introduction
This chapter provides an overview of legislation in the EU. Poultry farmers and other food business
operators in the poultry meat chain in the EU have to comply with this European legislation. This
legislation is the translation of societal and political choices made in the EU and its standards and
demands may exceed international standards and practices. Most EU legislation relates to
environmental protection, animal welfare and food safety. Section 1.2 gives an overview of the most
important legislation. Section 1.3 presents the economic impact of the legislation while Section 1.4
gives a short overview of the current situation of (welfare) legislation in some third countries.
Although all links in the supply chain are confronted with legislation, this chapter mainly focuses on
the situation and consequences at farm level.
1.2 EU legislation
This section briefly presents the EU legislation that is directly relevant to the poultry meat sector.
Some countries choose to go beyond EU standards by implementing more stringent national or
regional legislation, which is not, or just briefly, discussed in this chapter. A report of the European
Parliament, written by a group of research institutes, gives an overview of EU legislation related to the
livestock sector: beef cattle, pigs, sheep and poultry (Chotteau et al., 2009).
Environmental protection
The EU has taken measures to limit the pollution of land, water and air. The main environmental
legislation affecting poultry production in the EU is the Nitrates Directive. The Nitrates Directive
(91/676/EC) aims to control pollution and protect water quality in Europe, by preventing nitrates from
agricultural sources from polluting ground and surface waters and by promoting the use of good farming
practices. The Nitrates Directive forms an integral part of the Water Framework Directive and is one of
the key instruments to protect waters against agricultural pressures. The Directive has established action
programmes to be implemented by farmers, such as limitation of fertiliser application and/or a maximum
amount of livestock manure that can be applied per hectare per year (170 kg of nitrogen). Some
countries have additional national environmental legislation to limit manure spreading to certain periods
or specific soil types. This is especially relevant in areas with a high concentration of pigs and poultry,
such as the south and east of the Netherlands, Flanders in Belgium, Bretagne in France, Catalonia in
Spain, and the Po valley in the north of Italy. Because of this legislation poultry farmers in these regions
have to pay for the disposal of manure (Van Horne, 2012).
In the EU, all poultry farms which exceed a threshold size of 40,000 bird places are requested through
legislation to hold an environmental permit (Directive 2010/75). Operators are required to carry out
activities in compliance with their environmental permit and they must use ‘Best Available Techniques’
(BAT) in order to achieve a high level of environmental protection (ADAS, 2016). The aim of the
Directive is to apply the best available techniques to prevent or to reduce ammonia or other emissions
to air, land and water from these activities, since pollution from poultry houses need to be controlled.
In another Directive (2011/92) it is regulated that poultry farms need to have an Environmental
impact assessment (EIA). This is required for all installations with over 85,000 broiler places. Smaller
farms and installations for the slaughter of animals may also require such an assessment at the
discretion of the Member State. A fee is charged to cover the costs of the assessment. The Directive
also requires an odour or noise management plan in case of potential odour or noise complaints
(Van Wagenberg et al., 2012). In addition, Directive 2001/81/EC gives National Emission Ceilings to
ammonia emission for every Member State. Some countries, such as the Netherlands and Germany,
have additional national regulations to reduce ammonia emissions from poultry houses.
Wageningen Economic Research Report 2017-005 |9EU countries have to meet maximum limit values for certain substances to ensure air quality, following Directive 2008/50/EC. The Directive offers 3- or 5-year extensions to comply with the maximum limit values based on conditions and the assessment by the European Commission. Several EU Member States will have to take measures to reduce emissions of fine dust from the most important sources, such as poultry houses, in which the dust arises from feathers, bedding material and manure (Aarnink and Ellen, 2008). National authorities can set emission standards for fine dust from poultry houses based on the BAT. Examples are the Netherlands and Germany with legislation for poultry farms to control the emission of fine dust. On 27 October 2003, the European Union’s Council of Ministers adopted The Energy Taxation Directive (2003/96/EC), restructuring the European Community framework to tax energy products and electricity. The Directive widens the scope of the EU’s minimum rate system for energy products, previously limited to mineral oils, to all energy products, including coal, natural gas and electricity. The taxation leads to a rise of energy prices for broiler farmers, resulting in higher costs of heating and mechanical ventilation. In the EU, the disposal of poultry that die on the farm during the course of the normal production cycle is controlled by legislation (Regulation 1069/2009). Permitted disposal methods are specified. These include on-farm incineration (subject to approval from the competent authority) and off-farm disposal methods via a licensed disposal operator. In most EU countries farmers have to pay for regular collection of fallen stock. Food safety The European legislation on animal feed provides a framework to ensure that feedstuffs do not endanger human or animal health or the environment. The legislation sets rules on the circulation and use of feed materials, requirements for feed hygiene, rules on undesirable substances in animal feed, legislation on genetically modified food and feed, and conditions for the use of additives in animal nutrition. For example, in the EU the use of meat-and-bone meal in poultry feed is still banned. The consequence is higher disposal costs for slaughterhouses and higher costs for poultry feed. Furthermore, in January 2006, the EU banned growth-promoting antibiotics in animal feed. In addition, the European Commission has launched an EU strategy to combat the threat of antimicrobial resistance to human, animal and plant health. The strategy includes phasing out of antibiotics for non- medical use in animals, and covers a range of actions at EU and national level in the areas of data collection, surveillance, research and awareness-raising. A large proportion of protein sources for poultry feed is imported from outside the EU. An increasing share of world production of soya crops is from genetically modified hybrids. The asynchronous EU approval of GM crops, coupled with the operation of almost zero tolerance, is negatively affecting the EU supply of feed ingredients (Backus et al., 2008), resulting in higher feed costs. The poultry meat industry has to adapt rules of hygiene, traceability and labelling, because foodstuffs of animal origin may present microbiological and chemical risks. The EU has extensive food safety legislation based on risk analysis, most importantly the General Food Law (Regulation (EC) No 178/2002) and the hygiene package (Regulations (EC) No 852/2004, 853/2004, 854/2004 and 882/2004). This legislation states that food business operators such as farmers have the primary responsibility for food safety. Farmers are specifically affected by legislation on implementing good agricultural practices and Salmonella control. Farmers are also confronted with higher feed costs as a result of this EU legislation. For the poultry meat sector, the Zoonoses legislation is especially relevant. Zoonoses Directive 2003/99/EC and Regulation 2160/2003 regulate sampling, monitoring and control measures. In the EU, a framework of legislation on Salmonella has targeted a reduction in the incidence of Salmonella Enteritidis and Salmonella Typhimurium in poultry. Legislation has been implemented across Member States through National Control Plans and additional legislation (ADAS, 2016). The legislation ensures that proper and effective measures are taken to detect and to control Salmonella and other zoonotic agents at all stages of production, processing and distribution, particularly at the level of primary production, including in feed. The industry is confronted with costs of monitoring and expensive measures such as compulsory slaughter of breeding flocks found to be Salmonella positive. 10 | Wageningen Economic Research Report 2017-005
Animal welfare
All Member States have ratified the European Convention for animal protection with principles relating
to animal housing, feed and care appropriate to their needs (Council Directive 98/58/EC). The aim is
to spare animals all unnecessary suffering in three main areas: farming, transport and slaughter.
Minimum animal welfare standards have been established to protect and to avoid competition
distortions between producers in various Member States. The most important standards are concerned
with natural behaviour, space, feed and water supply, lighting, surgeries, veterinary aid and good
stockmanship. European legislation forms the basis, partly complemented by national top-ups (Van
Wagenberg et al., 2012). Protection of animals during transport is regulated in EC 1/2005. Directive
2007/43/EC establishes minimum rules for the protection of chickens for meat production. This
directive aims to provide the chickens with a good level of welfare and health under good indoor
climate conditions. An important part of this directive is setting a maximum stocking density of
33 kg/m2, or a maximum of 39 to 42 kg/m2 if stricter housing conditions and welfare standards are
met and the mortality rate of at least seven consecutive flocks is under a certain target value. The
new legislation establishes several other conditions, such as lighting, litter, feeding, and ventilation
requirements, to ensure better animal welfare. The Directive also provides the Commission with the
possibility to introduce further measures in the future, based on the scientific data and practical
evidence collected by the Member States. On top of EU legislation many countries especially in North-
West Europe have additional regulation for animal welfare. In Germany, the Netherlands and UK
retailers play a driving role in development, promotion and sales of poultry meat produced under
conditions with different welfare standards going beyond the legislation.
1.3 Economic impact of EU legislation
The poultry sector is governed by EU legislation and its implementation almost always leads to extra
costs. The poultry meat sector has to cope with the additional costs related to environmental
protection, food safety and animal welfare regulations. These additional costs were estimated for the
following aspects:
• Environmental protection
Manure disposal costs, as result of the Nitrate directive.
Reduction of ammonia emission in manure application, during manure storage and in the poultry
house.
• Food safety
Salmonella control. Costs of hygiene measures, sample collection, testing and vaccination.
Meat-and-bone meal (MBM). The ban on meat-and-bone meal in the EU results in higher feed
costs.
Antibiotic growth promoters. The ban on the use of antibiotic growth promoters results in higher
feed costs.
Genetically Modified Organisms (GMO). The strict rules in the EU on the use of GMO crops result in
higher feed costs.
• Animal Welfare
Stocking density. Additional housing costs to regulate the maximum live weight per square meter
poultry house.
In this study, the costs were estimated for the year 2015 based on the average situation in all EU
countries using the method described in Van Horne (2013). However, the actual situation can differ
per country or per region. For example, manure disposal costs are high in regions with a large number
of poultry farms and there are low or absent in regions with few poultry farms. In some EU countries,
other regulations can be relevant, which are not mentioned in the list above, such as the energy tax in
the Netherlands, resulting in higher cost for heating and electricity, and regulations on preventing foot
pad lesions (dermatitis) in Denmark and Sweden.
Figure 1.1 gives all cost components of the EU legislation relating to poultry meat. The additional costs
directly related to EU regulations are estimated to be 5.0 eurocents per kg live weight. This is almost
6% of the total production costs in 2015.
Wageningen Economic Research Report 2017-005 | 110.3
0.3
N directive
1.3 ammonia emission
Salmonella control
0.8 meat and bone meal
81.4 5.0
growth promotor
0.8
GMO
density
1.4 production cost base
0.1
Figure 1.1 Production costs in eurocents per kg live weight directly related to EU legislation in
2015
EU legislation is also creating additional costs for slaughterhouses and other companies in the supply
chain. No detailed calculations are available on these costs, but legislation on Salmonella control and
the ban on meat-and-bone meal (extra disposal costs for slaughter offal) result in higher costs for
slaughterhouses. As a result of Regulation 1161/2011 of the European Parliament and the Council, the
EU has mandated that all unprocessed poultry meat must be labelled with its country of origin. This
new legislation will confront most companies with additional costs (Baltussen et al., 2013). Another
example of legislation affecting the costs of slaughterhouses is Regulation 1099/2009 on stunning of
poultry. This regulation has been in effect since 1 January 2013.
Future European and national legislation may further increase the production costs of poultry meat.
The Member States have the competence to impose stricter rules for their regions in a number of
affairs. Additional regulations have already been implemented or will be implemented on several topics
in the coming years, including legislation on the limited use of antibiotics (e.g. the Netherlands,
Denmark), further reduction of fine dust emission (Germany, the Netherlands), reduction of footpath
dermatitis (e.g. the Netherlands, Sweden, Denmark) and reduction of the Campylobacter prevalence
(e.g. UK).
1.4 Situation in some third countries
Several reports give an overview of legislation in selected third countries. Van Wagenberg et al.
(2012) extensively studied the standards on food safety, environment and animal welfare in several
non-EU countries. A study at Wageningen UR (Bracke, 2009) focused on animal welfare regulations
and husbandry standards in the poultry sector with special attention for the broiler sector in Brazil,
Thailand and the USA. Also, Van Horne (2012) mapped the situation in the USA, India, Ukraine and
Argentina in the egg layer sector. More recently Lichter and Kleibrink (2016) did an extensive analysis
on standards for poultry production in 16 important poultry producing countries worldwide. ADAS
(2016) made a comparison of regulatory requirement and key practices in the poultry meat supply
chain in the EU and USA. This report gives an extensive overview covering the key areas: farm
production systems, feed supply and slaughter/processing.
In general, non-EU countries do not have any or have limited legislations on environmental protection,
food safety, and animal welfare. In some countries, for example the USA, the standards for food
safety and animal health are considered to be equivalent to those in the EU. Nevertheless, standards
between the EU and third countries do differ with regard to the type of veterinary drugs allowed and
GMOs that are approved. Specifically for animal welfare, research shows that the EU standards for
12 | Wageningen Economic Research Report 2017-005broiler production are the highest in the world. No country outside Europe has such detailed and strict
regulations to protect the welfare of poultry for meat production (Lichter and Kleibrink, 2016).
In most third countries, the standards for the environment, animal welfare and labour conditions are
lacking or the standards are lower than they are in the EU. These topics are not incorporated or only
marginally incorporated into trade agreements. Internationally accepted conventions or standards
exist for food safety (Codex Alimentarius), animal health and animal welfare (OIE) and labour
conditions (ILO), but do not exist for the environment. OIE codes are recommendation to its members
and the OIE has no power to force their members to follow the recommendations or standard laid
down in the codes. Food safety and animal health are important aspects in negotiating and
establishing trade agreements, but the environment, animal welfare and labour conditions are not or
not high on the agenda (Van Wagenberg et al., 2012).
Important exporters of poultry meat on the world market are Brazil, USA, Thailand, Argentina and
Ukraine. These countries have no food safety regulations that are similar to those in the EU, such as
the ban on meat-and-bone meal and antibiotic growth promoters, and the strict rules on the use of
GMO crops as ingredients in poultry feed. In the following sections we summarise the main
characteristics of the poultry sector, the export position, the legislation on animal welfare and the
production standards for these poultry meat producing countries.
Brazil
Brazil is one of the world’s leading poultry producing countries (ranked number 2) and the number one
exporter of poultry meat. The Brazilian poultry industry has some very large integrated companies
that are global players, such as BRF and JBS Aves Brazil. The poultry sector is characterised by high
productivity and high technology use. The integration model is largely adopted, bringing strict control
of the entire supply chain. The poultry industry is mainly concentrated in southern Brazil because of its
subtropical climate where broilers are often kept in simple open houses. Three types of broiler housing
can be distinguished in the area: low density housing (max 30 kg of live weight per m2), middle level
density housing (max 34 kg per m2) and high density housing (modern systems with mechanical
tunnel ventilation with up to 38 kg per m2). In Brazil, there is not much information available on
animal welfare since this topic does not receive much attention in the country. In fact, Brazil has no
legislation on animal welfare at farm level or during transport for poultry. A French report (ITAVI,
2012) gives an overview of regulation on food safety, animal feed and environmental protection in
Brazil. However, there is no or only limited legislation on these topics.
USA
The USA is the number one producer of poultry meat in the world and is the second largest exporter of
poultry meat after Brazil. As a result of the large domestic demand for breast meat, exports are
mainly cuts with bone (leg meat and leg quarters). The largest poultry producer in the world is based
in the USA: Tyson Foods. Other USA companies in the world’s top 10 poultry producers are Pilgrim,
Perdue and Koch Foods. The USA does not regulate welfare standards for farmed animals. In fact,
federal legislation in the USA focuses on transport (Farm Bill, 1996), slaughtering methods (1958) and
‘laboratory animals’ (1966), but even this legislation can differ from state to state. For poultry, the US
regulations dictate that poultry must be slaughtered using good commercial practices. There are no
federal regulations to control or safeguard the welfare of animals used in agriculture. State laws
govern animal welfare in some parts of the country but currently no such legislation applies to poultry
in any of the three major poultry-producing states Georgia, Alabama and Arkansas (ADAS, 2016). In
the USA, the national chicken council (NCC) has established guidelines for animal welfare of broilers.
The NCC recommends the guidelines to its members to ensure the humane treatment of animals and
to promote the production of quality products. The NCC guidelines promotes good health and the
welfare of broilers in several areas: education and training of farmers, proper nutrition and feeding,
appropriate comfort and shelter, health care, ability to display most normal behaviours, best practices
on the farm, catching and transport. Bird welfare at different stocking densities depends on access to
feeders and drinkers, ventilation system, litter management and husbandry, and density is advised
not to exceed 37 kg per m2 poultry house for chickens between 2 and 2.5 kg of live weight.
Wageningen Economic Research Report 2017-005 | 13Thailand The Thai poultry industry is an important player within Asia and a leading exporter of poultry meat. Thailand is together with Brazil the main supplier of poultry meat to the EU. Thailand can compete with breast meat on the EU market because dark leg-meat is preferred on the local Thai market. Since 1999, animal welfare in Thailand has been part of Thai government’s agenda and farms need to meet government standards. These farm standards are based on the Good Agricultural Practice (GAP) and are aimed to improve the quality and safety of livestock products. To be certified as export farms, farmers need to meet government criteria addressing not only animal welfare but also environmental concerns (waste management), food safety (e.g. withdrawal time of some pharmaceuticals), disease monitoring, biosecurity and traceability. In practice, the government notifications are mostly implemented on a voluntary basis by the sector. However, the regulations are compulsory if farms want to export. On these farms the density should not exceed 34 kg per m2 in closed poultry houses (Bracke, 2009). Argentina Argentina has a relatively new poultry industry. The country is ranked number eight in the list of poultry producing countries in the world. In the last 10 years, Argentina has become an exporter of broiler meat. In 2015 it was the number six supplier of poultry meat to the EU. The main product exported to the EU is breast meat, which has the highest average value per tonne. Circumstances for broiler farming in Argentina are excellent. Feed ingredients such as corn and soybeans are locally available in large amounts, the climate is moderate and cheap labour is available for farming and processing. Currently, broiler farming and slaughtering/processing in Argentina are almost completely vertically coordinated. Through contracts, the industry delivers, in most cases, day- old chicks, feed and professional advice to the producers, who contribute the poultry housing and labour. The integrators in Argentina promote modernisation by financing improvements on contracted farms, and demanding certain technological standards as a condition of entrance for new producers. Argentina has no specific legislation on animal welfare. However, it does have some legislation for related topics such as food safety and product quality, as well as manuals for the broiler sector on Good Practices for the Production that indirectly impose animal welfare criteria. Van Horne (2010), however, concluded that, according to the information collected through the survey and the interviews with producers and businessmen, producers in Argentina do not consciously implement animal welfare practices. However, the average density in the broiler houses is relatively low as a result of the warm climate. Ukraine After Ukraine became independent in 1991 the principles of the free market economy were introduced. Since the poultry sector was privatised in 1998, it has shown remarkable progress. In recent years, the production results improved as a result of better management, improved feed quality and modern health service. At the moment Ukraine has become a competitive producer of poultry meat. In 2015 Ukraine was the third supplier of poultry meat to the EU. Large companies are Agromars and Myronivsky Hliboproduct (MHP). MHP has a dominant position on the domestic market and exports to many countries in the direct region, Middle East and North Africa. Most of the poultry meat production is fully integrated with grain production, parent stock, hatcheries, feed mills and slaughterhouses. What is different from other countries is that grain production is integrated in the company. In the Ukraine there is no governmental legislation with standards on animal welfare for broiler production (ITAVI, 2016). According to company information MHP has an internal standard to limit the density to 38-39 kg of live weight per m2 poultry house. The Ministry of Agriculture has the objective to adapt national legislation on animal welfare with the standards of the EU. The exact time schedule is not known, but the year 2020 was mentioned. 14 | Wageningen Economic Research Report 2017-005
2 Production costs of broilers in
selected countries, 2015
2.1 Production costs in some EU countries
The production costs of broilers have been researched for the following nine EU countries: the
Netherlands (NL), Germany (DE), France (FR), United Kingdom (UK), Italy (IT), Spain (ES), Denmark
(DK), Poland (PL) and Hungary (HU). The calculated production costs at farm level are based on the
situation in 2015. Of almost all countries average zootechnical (performance) data and economic data
(prices) were available. To give some examples: in the Netherlands Wageningen Economic Research
collects data of broiler farms, in Germany similar data are available from the Chamber of Commerce
(Landwirtschaftskammer Niedersachsen) and in Denmark data are collected and published by the
Danish Poultry Council (Det Danske Fjerkraeraad). For France, the UK and Hungary the data are based
on information of respectively the research institute ITAVI, advisory group ADAS and the University of
Debrecen. For Poland, Italy and Spain a mix of sources was used to compile the basic assumptions.
After calculating the production costs at farm level, we also calculated the costs for slaughter.
Section 2.1.2 gives an overview of the production cost after slaughter.
2.1.1 Production costs at primary farm in EU countries
Figure 2.1 shows the calculated production costs in the selected EU countries and Table 2.2 gives the
total production costs and the build-up of the production costs in these countries. All countries have
production costs in the range of 82 to 91 eurocents per kg live weight. The production costs in Poland
are the lowest at 81.8 eurocents per kg live weight. Italy has the highest production costs at
90.6 eurocents per kg live weight.
100
90
80
eurocents per kg live weight
70
60
50
54.5 60.4
51.2 58.9 50.8 53.8
40 52.6 52.9 52.3
30
20
10 17.1 18.7
14.2 14.4 14.5 13.1 15.7 14.5 14.3
0
NL DE FR UK IT ES DK PL HU
day-old chicks feed other variable costs labour housing general
Figure 2.1 Production costs of broilers in eurocents per kg live weight in nine EU countries in 2015
Wageningen Economic Research Report 2017-005 | 15Table 2.1 Prices and technical performance for broiler production in selected EU countries
NL DE FR UK IT ES DK PL HU
Feedprice (euro /100 kg) 32,7 32,9 30,1 33,0 35,3 33,7 32,2 32,6 31,5
Day-old chick (eurocent) 31,5 32,0 31,2 40,6 33,5 32,5 33,2 32,0 31,6
Live weight (g) 2,300 2,300 1,900 2,250 2,400 2,600 2,200 2,300 2,300
Feed conversion 1,61 1,61 1,70 1,65 1,71 1,75 1,58 1,65 1,66
Table 2.2 Costs of primary production in eurocents per kilogram of live weight in selected EU
countries in 2013
NL DE FR UK IT ES DK PL HU
Total costs (incl. labour) 84,5 86,0 88,8 89,9 90,6 87,3 85,0 81,8 83,6
Total costs (excl. labour) 80,9 82,2 83,6 86,5 88,0 84,5 81,2 80,3 81,9
Day-old chicks 14,2 14,4 17,1 18,7 14,5 13,1 15,7 14,5 14,3
Feed 52,6 52,9 51,2 54,5 60,4 58,9 50,8 53,8 52,3
Other variable costs 7,8 7,8 8,6 7,1 7,3 5,6 8,3 6,7 8,6
Labour 3,6 3,8 5,2 3,4 2,6 2,8 3,8 1,5 1,7
Housing 4,9 5,9 5,9 5,4 5,1 6,2 5,5 4,7 5,8
General 0,8 0,8 0,9 0,9 0,7 0,7 0,9 0,6 0,6
Manure disposal 0,6 0,4 0,0 0,1- - - 0,0 0,1- 0,3
Prices
Table 2.1 gives the average price of feed and day-old chicks. The price of feed strongly influences the
total production costs. Feed prices in the EU countries range from €30.1 per 100 kg in France to €35.3 in
the Italy. In all countries, the feed price is influenced by the world market prices of the main feed
ingredients, such as grains (wheat and maize) and soybeans. The difference in feed price between the
EU countries is a result of differences in structure of the supply chain (integrated versus non-integrated),
average farm size, feed mill policy, average transport distance to farms and the country’s access to sea
harbours and water ways for efficient supply of feed ingredients. For the countries that do not use euros,
the exchange rate is also relevant because the feed prices in Table 2.1 are calculated in euros: Poland,
UK and Hungary. Table 2.1 also gives the day-old chick prices in eurocents per chick. For most countries
the price in 2015 was between 31 to 34 eurocents per chick. Prices in the UK are higher compared to the
other countries. Table 2.2 also indicates the costs of day-old chicks but these are expressed in costs per
kg live weight. This means that besides the price of the day-old chick the average final live weight of the
broilers also impacts the costs of day-old chicks per kg live weight.
Performance
Table 2.1 gives the main indicators of the zoo-technical results that are the average live weight
(gram) and the feed conversion (kg of feed used per kg live weight). The live weight in most countries
is between 2 and 2.5 kg. Exceptions are France with a lower average live weight and Spain with an
average higher live weight of 2.6 kg. The feed conversion is a good indicator of the production
efficiency. Feed conversion also differs between the EU countries. Table 2.1 shows that farms in
Netherlands, Germany and Denmark have low feed conversion rates. At first glance, Italy and Spain
seem to have high feed conversion rates. However, it should be taken into account that feed
conversion is correlated with live weight. Growing broilers to a higher final weight, as in Italy and
Spain, results in a higher feed intake per kg growth.
Cost components
Table 2.2 shows that EU countries also differ in some other cost components. Other variable costs
relate to costs of heating, electricity, litter, animal health and catching. These costs vary slightly
between the countries mainly because of differences in heating costs (fuel prices) and costs of
catching. Labour costs also differ between countries. Normally, the work on the farm is done by the
farmer. This work is calculated in the production costs based on a regular payment (full-time
equivalent) for similar work in the specific country. In the eastern and southern countries, the costs of
labour are generally lower than they are in North-West Europe. The differences in housing costs
(poultry house and inventory) between the countries relate to differences in investments for a poultry
16 | Wageningen Economic Research Report 2017-005house, stocking density and interest rate. General costs relate to the costs at farm level for insurance,
bookkeeping, consultancy, telephone, and transport. In some countries broiler farmers have manure
disposal costs. In the Netherlands, Germany (in the state Lower Saxony) and Hungary farmers have to
pay for a sustainable disposal of manure. In other countries, farmers do not have to pay for manure
disposal, while in the UK and Poland farmers even receive a small revenue.
2.1.2 Production costs after slaughter
The costs of slaughter are calculated based on the slaughter of broilers in a large commercial
slaughter house. The final product is a broiler carcass. The weight of the carcass is 70% of the live
weight of the broilers delivered from the farm. Basic assumption is that the costs of slaughter are
33 eurocents per kg carcass weight in the Netherlands. The main components in the slaughter costs
are labour (35%) and building and equipment (25%). The other costs (40%) are, for example,
transport of broilers, energy, water, inspection and packing. These costs vary from country to country.
However, because all slaughterhouses in the EU use advanced modern equipment, it is assumed that
the differences in slaughter costs between the countries are mainly a result of differences in labour
costs. Based on labour costs for slaughterhouse workers, the costs of slaughter are calculated for the
selected EU countries. The hourly wages for workers in slaughterhouses, including social tax, are: in
the Netherlands €22, in Germany €15, in France €20, in the UK €15, in Italy €14, in Spain €14, in
Denmark €30, in Poland €6 and in Hungary €5. Differences in labour costs also have an influence on
the level of investment for buildings and the costs of bird transportation. Also differences in interest
rate between the countries are taken into account and have an impact on the annual costs of building
and equipment. Table 2.3 gives the final results of costs at farm level and the costs of slaughter in
euro per kg carcass weight. Figure 2.2 gives the same data in a graph.
Table 2.3 Cost of primary production, cost of slaughter and total costs in eurocents per kg carcass
weight
NL DE FR UK IT ES DK PL HU
Farm-level costs 121 123 127 128 129 125 121 117 119
Slaughter costs 33 28 31 27 27 27 38 22 21
Total 153 150 158 156 156 152 159 139 140
160
140 31 27 27 38
33 28 27
22 21
120
eurocents per kg carcass weight
100
80
127 128 129 125
60 121 123 121 119
117
40
20
0
NL DE FR UK IT ES DK PL HU
farm-level costs slaughter costs
Figure 2.2 Costs of primary production and slaughter of broiler in eurocents per kilogram of carcass
weight in 2015
Wageningen Economic Research Report 2017-005 | 172.2 Production costs in some non-EU countries
The production costs of poultry meat was researched in six countries outside Europe: the United
States of America (USA), Thailand (THA), Brazil (BRA), Argentina (ARG), Russia (RUS) and Ukraine
(UKR). Brazil and the United States are the main exporters to the world market. Brazil and Thailand
are the main suppliers of (frozen) poultry meat to the EU. Argentina is an important ‘low costs
producer’ and also exports poultry meat to the EU. Ukraine has been included in the above list
because this country in 2015 started exporting poultry meat to the EU. Ukraine is close to Poland and
Germany and it has the potential of becoming an important exporter to the EU. The data for the
United States are based on information from the National Chicken Council (NCC). For Brazil, data are
available from the research organisation Embrapa. For Thailand, Argentina, Russia and Ukraine, the
information is based on several sources. Production costs for these countries are calculated in local
currency and subsequently converted into euros. The average exchange rate for 2015 was used for
the euro conversion (Appendix 1).
2.2.1 Production costs at primary farm
Figure 2.3 shows the total production costs for the EU as compared to the USA, Thailand, Brazil,
Argentina, Russia and Ukraine. In the EU, the average total production costs were 86.4 eurocents per
kg live weight in 2015. In the Brazil, Ukraine and the USA, production costs are significantly lower
than in the EU, respectively 62.2, 65.6 and 68.6 eurocents per kg live weight. Argentina and Thailand
also have lower production costs compared to the EU: Argentina 72.0 eurocents and Thailand
76.6 eurocents per kg live weight. The total production costs in Russia are only slightly below the EU
average. The basic assumptions for performance and prices are given in Table 2.4. The total costs and
the build-up of the main items for all countries are shown in Table 2.5.
100
90
80
eurocents per kg live weight
70
60
50
54.2 50.6
40 52.9
48.8 47.7 39.3
30 42.2
20
10
15.2 16.5 13.7
9.8 12.6 9.4 10.3
0
EU USA THA BRA ARG RUS UKR
day-old chicks feed other variable costs labour housing general
Figure 2.3 Production costs of broilers in eurocents per kg live weight in the Europe Union (EU) and
six third countries in 2015
The feed price determines the total production costs to a significant extent. The feed price is
considerably lower in Ukraine, Brazil, Argentina and the USA than it is in the EU. The lower feed price
18 | Wageningen Economic Research Report 2017-005in these countries can largely be explained by the domestic availability of sizeable quantities of feed
ingredients such as maize and soy bean. European producers partly depend on South American
imports for their feed ingredients. The costs of storage, transport and margins increases the price of
feed ingredients in Europe. The price of day-old chicks is also lower because of the low feed price.
Table 2.4 also shows the most important zoo-technical results for third countries. In the USA, Brazil,
Argentina, the final weight of broilers is higher than it is in the EU. When the final weight is higher,
then the feed conversion is also higher. Still, the feed conversion is relatively high in some countries.
Table 2.4 Prices and technical performance for broiler production in EU and selected non-EU
countries
EU USA THA BRA ARG RUS UKR
Feedprice (euros /100 kg) 32,7 26,3 31,5 23,6 26,0 28,9 21,8
Day-old chick (eurocents) 33,1 25,1 28,9 23,6 25,5 32,5 32,0
Live weight (g) 2,283 2,700 2,400 2,600 2,600 2,100 2,480
Feed conversion 1,66 1,86 1,68 1,79 1,83 1,75 1,80
Table 2.5 Costs of primary production in EU and selected non-EU countries in eurocents per kg live
weight a)
EU USA THA BRA ARG RUS UKR
Total costs (incl. labour) 86,4 68,6 76,6 62,2 72,0 81,9 65,6
Total costs (excl. labour) 83,2 66,7 75,5 60,3 69,1 81,1 65,3
Day-old chicks 15,2 9,8 12,6 9,4 10,3 16,5 13,7
Feed 54,2 48,8 52,9 42,2 47,7 50,6 39,3
Other variable costs 7,5 4,5 5,1 3,4 4,0 7,7 5,5
Labour 3,2 1,9 1,1 2,0 2,9 0,8 0,4
Housing 5,5 2,9 4,3 4,9 6,8 5,8 6,5
General 0,8 0,7 0,5 0,4 0,4 0,5 0,4
Manure disposal 0,1 - - 0,1- 0,1- - 0,1-
In addition to the aforementioned differences in the feed price and purchase price of day-old chicks,
some third countries also have the advantage of lower housing and labour costs. The reason for the
lower labour costs in Thailand, Brazil, Argentina, Ukraine and Russia are lower wages but also lower
social security premiums. The difference in labour costs between Europe and the US is mainly
attributable to the social security system, with higher employer charges being paid in Europe.
In all non-EU countries, broiler producers have no costs for the disposal of manure. Manure is
disposed free-of-charge in the region. In Brazil, Argentina and Ukraine, the removal of dry poultry
manure is a small source of income.
In Brazil, Argentina, Thailand and Ukraine producers have lower costs, because on many topics no
legislation exists as in the EU. Examples are the use of antimicrobial growth promoters and meat-and-
bone meal in broiler feed, and the absence of environmental legislation. Meat-and-bone meal is used
in countries outside the EU, whereas it is explicitly forbidden in the EU. When meat-and-bone meal is
used, the composition of the feed is adjusted and this leads to a lower feed price.
2.2.2 Production costs after slaughter
In addition to the costs of primary production, the costs of slaughter also play an important role in the
international comparison of competitiveness. The costs of slaughter are calculated based on slaughter
of broilers in a large commercial slaughterhouse. The weight of the carcass is 70% of the live weight
delivered from the farm. The main components of the slaughter costs are labour (35%) and building
and equipment (25%). The other costs (40%) are, for example, transport of broilers, energy, water,
inspection and packing. We assumed that all countries use advanced modern equipment in the
Wageningen Economic Research Report 2017-005 | 19slaughterhouses that produce broiler meat for export. It is assumed that the differences in slaughter
costs between the countries are mainly a result of differences in labour costs. Based on labour costs
for slaughterhouse workers, the costs of slaughter are calculated for the selected non-EU countries.
Hourly wages for workers in slaughterhouses, including social tax, in some countries are: the USA
€13.5, Thailand €2, Brazil €3, Argentina €6, Russia €3.5 and Ukraine €2. In the calculations per
country also differences in interest rate on investments are taken into account and the fact that
inspection costs are lower in third countries compared to the EU. Table 2.6 gives the results of costs at
farm level and the costs of slaughter in eurocents per kg carcass weight. Figure 2.4 gives the same
data in a graph.
Table 2.6 Costs of primary production, costs of slaughter and total costs in eurocents per kg
carcass weight
EU USA THA BRA ARG RUS UKR
Farm-level costs 123 98 109 89 103 117 94
Slaughter costs 28 25 17 17 20 19 18
Total 152 123 126 106 123 136 112
160
140
28
19
120 17
eurocents per kg carcass weight
25 20
100 18
17
80
60 123
117
109
98 103
89 94
40
20
0
EU USA THA BRA ARG RUS UKR
farm-level costs slaughter costs
Figure 2.4 Costs of primary production and slaughter of broilers in eurocents per kg slaughter
weight in the European Union and six third countries in 2015
In the EU, the average production costs after slaughter are 152 eurocents per kg carcass weight.
Brazil and Ukraine have very low costs with 106 to 112 eurocents per kg carcass weight, which is
around 30% lower than the EU average.
20 | Wageningen Economic Research Report 2017-0053 Results of different scenarios
3.1 Description of the scenarios
Three scenarios were developed to show how a change in import levies and a change in the exchange
rate may impact the competitiveness of the EU poultry meat sector:
1. A change in the EU import levy on poultry meat, as a possible result of a new multilateral (WTO)
agreement or bilateral agreements
In this scenario, the basic import levy is reduced by 50%, plus the additional levy is removed.
2. A change in exchange rates of the US dollar, Thai baht, Brazilian real, Argentine peso, Russian
rouble and Ukrainian hryvnia
In this scenario, a 10% lower exchange rate is assumed for the currencies of the non-EU-
countries. The average exchange rate in 2015 was used to convert the production costs of all
countries into euros. Appendix 1 shows the development of the exchange rates in these non-EU
countries. The graph and the table in Appendix 1 illustrate that a 10% lower exchange rate can be
a realistic scenario for some countries.
3. A combination of a lower import levy (scenario 1) and a lower exchange rate of third country
currencies (scenario 2)
This is the ‘worst case’ scenario.
In this chapter these three scenarios have been examined for breast fillet. In all figures, the EU level is
an average of the nine EU countries shown in chapter 2.
3.2 Production costs of breast filet
Based on the calculation of the production costs at farm level and in the slaughterhouse (see Chapter
2), the production costs of breast fillet was calculated for all countries. After slaughter the bird’s
carcass has to be cut into different parts: breast cap, leg quarter, wings and rest of the carcass. In the
next processing step, the breast cap will be deboned, and breast meat will be the final product. Breast
meat is the product with the highest value on the European market and, therefore, it is the most
interesting product to be exported to the EU. To calculate the production cost of breast meat for all
countries, we added the following costs to the production after slaughter: the costs of cutting up the
breast cap and the costs of deboning it. For EU countries, the disposal costs for offal were added.
Revenues come from the sale of the legs/leg quarters, the wings and the rest of the carcass. Finally
the revenues were subtracted from the total costs. For the non-EU countries, the offal also results in
revenues. The result of the calculation is the net production costs of a kg of breast meat at the
processing plant in the production country.
To compare the offer price on the EU market, we also added the additional costs of transport for all
countries. Transport costs include local transport to the harbour, sea freight in a container, handling
costs in the harbour, and transport from a European harbour to the final location within Europe.
Frankfurt am Main in Germany is set as a reference to calculate the transport costs. The import levies
were also added to these costs. Figure 3.1 gives an overview of all costs components to compare the
offer price of the selected non-EU countries to the EU average.
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